Commodities – with notable exceptions – are having a great year
It’s been an extraordinary year for resource commodities amid near-unprecedented turmoil wrought by the Covid-19 pandemic.
Gold is glittering like its 1980. Copper, shrugging off the frail world economy, is trading higher than a year ago. Oil is recovering from its seemingly apocalyptic selloff in March.
There are a few notable exceptions to this trend. The diamond industry has all but ground to a halt, severely disrupting the value chain.
Fossil fuel commodities such as coal seem to be in terminal decline.
Supply/demand fundamentals are looking good
Commodity prices are likely to remain strong, according to Ilja Graulich, Head of Investor Relations and Communications at integrated resources group Tharisa.
Demand for copper remains robust, but on the supply side, the situation is complex.
“Copper grades are reducing around the world,” says Graulich. “The easy resources have been found. You’re also dealing with complex political issues. We need to find more supply, and that supply has to be financed.
“The balance sheets of resource companies are relatively healthy, and producers are cautious about expanding. The supply/demand fundamentals are in good shape.”
Tawanda Madondo, Principal Coverage Banker for Natural Resources and Energy at Absa CIB, is more cautious in his optimism.
“Commodities are booming,” concurs Madondo. “But we shouldn’t get too excited. Some of the rising prices have to do with supply uncertainty amidst Covid-19.”
Fossil fuels are hurting
“Things like coal and natural gas are really suffering,” says Bevan Jones, CEO of African Source Markets.
“Any commodity linked to CO2 – investors are few and far between. The banks are becoming more circumspect. Everyone is driven by the effect on the climate.”
Beneficiation – we should throw our weight around
South Africa must look at beneficiation of commodities such as platinum, nickel, copper, chrome and manganese, says Jones.
“We’ve got a significant advantage,” says Jones. “We could become a hub if we created beneficiation points.”
For more detail, listen or watch the discussion below.
Watch the entire, unedited discussion below.
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